Exhibit 21




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Phoenix Leasing Incorporated:

         We have audited the accompanying consolidated balance sheets of Phoenix
Leasing Incorporated (a California corporation) and subsidiaries as of September
30, 2000 and 1999. These balance sheets are the  responsibility of the Company's
management.  Our responsibility is to express an opinion on these balance sheets
based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain  reasonable  assurance  about whether the balance sheets are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the balance sheets. An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

         In our opinion, the balance sheets referred to above present fairly, in
all material respects,  the financial  position of Phoenix Leasing  Incorporated
and  subsidiaries as of September 30, 2000 and 1999,  conformity with accounting
principles generally accepted in the United States.


                                                                 ARTHUR ANDERSEN

San Francisco, California,
December 1, 2000


                                  Page 1 of 15
<PAGE>


                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                     ASSETS
                                                             September 30,
                                                          2000          1999
                                                      ------------  ------------

Cash and cash equivalents                             $  2,499,756  $  6,720,999
Investments in securities                               13,446,224    11,181,265
Trade accounts receivable, net of allowance for
   doubtful accounts of $190,969 and $41,534
   at September 30, 2000 and 1999, respectively          1,949,175       310,293
Receivable from Phoenix Leasing Partnerships,
   other affiliates and trusts                           5,617,418     3,444,482
Notes receivable from related party                           --       2,093,883
Equipment subject to lease                               8,490,138    28,093,038
Notes receivable, net                                   15,265,057    53,032,140
Investments in Phoenix Leasing Partnerships                205,814       216,088
Property and equipment, net of accumulated
   depreciation of $9,811,731 and $8,654,783
   at September 30, 2000 and 1999, respectively          5,057,939     5,463,220
Capitalized initial direct costs of originating
   leases and loans                                        820,023     2,394,849
Other assets                                             3,098,477     2,483,549
                                                      ------------  ------------

         TOTAL ASSETS                                 $ 56,450,021  $115,433,806
                                                      ============  ============

                      LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES:

Warehouse lines of credit                             $       --    $ 64,462,354
Accounts payable and accrued expenses                    5,287,388     4,907,345
Long-term debt                                          19,955,915    19,185,694
Deficit in investments in Phoenix Leasing
  Partnerships                                             178,073        24,180
                                                      ------------  ------------

TOTAL LIABILITIES                                       25,421,376    88,579,573
                                                      ------------  ------------

Minority Interests in Consolidated Subsidiaries            318,891       169,309
                                                      ------------  ------------

Commitments and Contingencies (Note 13)

SHAREHOLDER'S EQUITY:

Common stock, without par value, 30,000,000
   shares authorized, 5,433,600 issued and
   outstanding at September 30, 2000 and 1999,
   respectively                                             20,369        20,369
Additional capital                                      11,766,920    11,466,920
Accumulated other comprehensive income                   7,175,870     5,949,048
Retained earnings                                       11,746,595     9,248,587
                                                      ------------  ------------

TOTAL SHAREHOLDER'S EQUITY                              30,709,754    26,684,924
                                                      ------------  ------------

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY            $ 56,450,021  $115,433,806
                                                      ============  ============


      The accompanying notes are an integral part of these balance sheets.

                                       2
<PAGE>

                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


Note 1. Summary of Significant Accounting Policies:

         a.  Organization - Phoenix Leasing  Incorporated and subsidiaries  (the
Company),  a wholly owned subsidiary of Phoenix American  Incorporated (PAI), is
engaged in the management of  partnerships  which  specialize in equipment lease
financing  and secured  lending.  The Company also engages in similar  financing
activities  for its own  account  and pools  these  loans and leases for sale to
third parties or to trusts which engage in the sale of asset backed securities.

         Effective  August 9, 2000,  Phoenix  Warehouse IV, Inc., a wholly owned
subsidiary  of PLI was  transferred  to the 1978 Gus and  Mary  Jane  Constantin
Living Trust (the "Trust") at which time Phoenix  Warehouse IV, Inc.  acquired a
portfolio of leases and loans on a leveraged basis.

         b.  Principles  of  Consolidation  - The  consolidated  balance  sheets
include  the  accounts  of  Phoenix  Leasing  Incorporated  and  its  wholly  or
majority-owned  subsidiaries  and  subsidiaries  over which the  Company  exerts
control.  All  significant  intercompany  accounts  and  transactions  have been
eliminated in consolidation.

         Except as  otherwise  explained  below,  minority  interests in the net
assets and net income or loss of  majority-owned  subsidiaries  are allocated on
the basis of the proportionate ownership interests of the minority owners.

         Three  of  the  consolidated   subsidiaries   are  California   limited
partnerships  (the  Partnerships)  which are  general  partners  of three of the
Phoenix Leasing  Partnerships.  As of September 30, 2000, the Company held a 50%
general  partner  ownership  interest  in two of the  Partnerships  and a  62.5%
interest  in one.  Under the terms of the  partnership  agreements,  profits and
losses  attributable to acquisition fees paid to the  Partnerships  from Phoenix
Leasing Partnerships are allocated to the limited partner (the minority owner in
the Partnerships) in proportion to the limited partner's ownership interest. All
remaining profits and losses are allocated to the Company.  Distributions to the
partners are made in accordance with the terms of the partnership agreement. The
limited  partner of each of the  Partnerships  is Lease  Management  Associates,
Inc., a Nevada corporation  controlled by an officer of the Company,  who is the
owner of PAI.

         c.  Investments - Investments in Phoenix Leasing  Partnerships  reflect
the Company's equity basis in the Phoenix Leasing Partnerships. Under the equity
method of accounting the original investment is recorded at cost and is adjusted
periodically  to  recognize  the  Company's   share  of  earnings,   losses  and
distributions after the date of acquisition.  The Company has adopted the equity
method of accounting on the basis of its control and significant  influence over
the Phoenix Leasing Partnerships.

         d. Equipment  Leasing and Financing  Operations - The Company's primary
leasing  activity  is  the  origination  of  financing  leases.  The  method  of
accounting for financing leases  recognizes  unearned income at the inception of
the lease  calculated  as, the excess of net rentals  receivable  and  estimated
residual  value at the end of the  lease  term,  over the cost of the  equipment
leased. Unearned income is credited to income monthly over the term of the lease
on a  declining  basis to  provide  an  approximate  level rate of return on the
unrecovered  cost of the  investment.  Initial direct costs of  originating  new
leases and notes receivable are capitalized and amortized over the initial term.

         The  Company's   notes   receivable   generally  are  stated  at  their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.

         e.  Impaired  Notes  Receivable - Notes  receivable  are  classified as
impaired  and the accrual of interest  on such notes are  discontinued  when the
contractual  payment  of  principal  and  interest  becomes  90 days past due or

                                       3
<PAGE>

                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000

management has serious doubts about further  collectibility  of the  contractual
payments,  even  though  the  loan  may  currently  be  performing.  When a note
receivable is classified as impaired,  income  recognition is discontinued.  Any
payments received subsequent to the placement of the note receivable on impaired
status will generally be applied towards the reduction of the  outstanding  note
receivable  balance,  which may include  previously  accrued interest as well as
principal. Once the principal and accrued interest has been reduced to zero, the
remaining payments will be applied to interest income.

         Impaired  notes  receivable  are measured based on the present value of
expected future cash flows discounted at the note's original  effective interest
rate.  Alternatively,  impairment  is  measured  based on the note's  observable
market   price  or  the  fair   value   of  the   collateral   if  the  note  is
collateral-dependent.  When the  measure of the  impaired  note is less than the
recorded  investment in the note, the impairment is recorded through a valuation
allowance.

         f.  Allowance  for Loan  Losses - An  allowance  for  losses  for notes
receivable is established  through provisions for losses charged against income.
Notes receivable  deemed to be  uncollectible  are charged against the allowance
for losses, and subsequent recoveries, if any, are credited to the allowance.

         g.  Allowance  for Lease  Losses - An  allowance  for losses on finance
leases is established  through provisions for losses charged against income. The
loss is measured when it becomes  probable that the Company will not recover its
net investment in the finance lease. The loss is estimated as the net investment
in a finance  lease that will not be recovered  through the  remaining  payments
from the lease, including the value of equipment on lease. Finance leases deemed
to be  uncollectable  are charged  against the allowance  for lease losses,  and
subsequent recoveries, if any, are credited to the allowance.

         h. Portfolio  Valuation  Methodology  -  The Company uses the portfolio
method  of  accounting  for net  realizable  value  of the  Company's  equipment
portfolio.

         i. Property and  Equipment - Property and  equipment  which the Company
holds for its own use are recorded at cost and  depreciated  on a  straight-line
basis over estimated useful lives ranging up to 45 years.

         j. Income  Taxes - Prior to July 1, 1998,  the Company was  included in
the consolidated and combined tax returns filed by PAI.

         Effective  July 1, 1998, the Company and all its  subsidiaries  adopted
treatment as a Subchapter  "S"  Corporation  pursuant to the Federal  Income Tax
Regulations for tax reporting purposes and changed its fiscal year end from June
30 to September 30. Federal and state income tax regulations  provide that taxes
on the  income  or loss  of the  Company  are  reportable  on the  shareholder's
individual  income tax return.  Therefore no provision for income taxes has been
recorded for periods subsequent to July 1, 1998.

         k. Investments in Securities - Investments in securities, available for
sale, are stated at fair value or amortized cost which  approximates fair value,
as specified by SFAS 115. Interest is recognized when earned.

         l. Use of  Estimates  - The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the balance sheets. Actual results could differ from those estimates.

                                       4
<PAGE>

                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000

         m. Reclassification  - Certain 1999 balances have been  reclassified to
conform to the 2000 presentation.

         n. Cash and Cash Equivalents - Includes deposits at banks,  investments
in money  market  funds and other  highly  liquid  short-term  investments  with
original maturities of less than 90 days.

         o. Credit and  Collateral  - A credit  evaluation  is  performed by the
Company  for all  leases  and  loans  made,  with  the  collateral  requirements
determined on a case-by-case basis. The Company's loans are generally secured by
the  equipment or assets  financed and, in some cases,  other  collateral of the
borrower.  In the event of default,  the Company has the right to foreclose upon
the collateral used to secure such financing.

         p. Non-Cash  Transactions  -  An affiliate  of the Company  contributed
$300,000 in a financial  instrument  in return for a 50%  interest in one of the
Company's subsidiaries.

         During  the year ended  September  30,  2000,  the  Company  sold stock
warrants to an  affiliate  of the Company at fair market  value.  A dividend and
additional gain on the sale of securities of $339,430  resulted from the sale at
fair market value to the affiliate.

Note 2.  Receivables from Phoenix Leasing  Partnerships,  Other Affiliates,  and
         Trusts:

         Receivables  from Phoenix Leasing  Partnerships,  other  affiliates and
trusts consist of the following as of September 30:

                                                             2000         1999
                                                             ----         ----

Management fees                                           $   54,828  $  155,083
Acquisition fees                                             312,905     185,030
Other receivables from Phoenix Leasing Partnerships, net      20,000     203,542
Servicer advances due from unaffiliated trusts               444,186     615,019
Receivable from Parent                                     3,635,085   2,082,065
Receivables from other corporate affiliates                1,150,414     203,743
                                                          ----------  ----------
                                                          $5,617,418  $3,444,482
                                                          ==========  ==========

Note 3. Investments in Phoenix Leasing Partnerships:

         The Company  records its  investments in Phoenix  Leasing  Partnerships
under the equity  method of  accounting.  As general  partner,  the  Company has
complete  authority  in, and  responsibility  for,  the overall  management  and
control of each  partnership,  which  includes  responsibility  for  supervising
partnership   acquisition,   leasing,   remarketing   and  sale  of   equipment.
Distributions  of cash from the  partnerships  are made at the discretion of the
general  partner;  historically,  a  significant  portion  of the  partnerships'
earnings has been distributed annually.

         The activity in the investments in Phoenix Leasing Partnerships for the
year ended September 30, are as follows:

                                       5
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000

                                                2000           1999
                                                ----           ----

         Balance, beginning of year         $   191,908    $ 1,655,329
         Additional investments                    --        1,159,756
         Write-off investment                   (61,539)    (1,583,868)
         Equity in earnings                     419,624        943,259
         Cash distributions                    (522,252)    (1,982,568)
                                            -----------    -----------
         Balance, end of year               $    27,741    $   191,908
                                            ===========    ===========


         The Company's  total  investments in Phoenix Leasing  Partnerships  are
comprised  of  investments  in  certain   partnerships   which  are  subject  to
fluctuations due to partnerships' performances and timing of cash distributions.
At times the investment in those partnerships will be a deficit.

         One  of  the  Phoenix  Leasing  Partnerships  ceased  operations  as of
December 31, 1998. At closing,  the Company, as General Partner, was required to
make additional capital  contributions to the extent of differences  between the
Partnership's  general  partner's tax capital  account and book capital  account
balances.  The capital  contributions were subsequently written off to bring the
book capital account balance to $0. The Company recorded a loss of $1,583,868 as
a result of this write-off during the year ended September 30, 1999.

         Two Phoenix Leasing  Partnerships  ceased operations as of December 31,
1999.  Additional capital contributions by the General Partner was not necessary
in the  closure of these  Partnerships.  The  Company  recorded a  write-off  of
$61,539 for the year ended  September 30, 2000 which was  attributable  to these
two Partnerships.

         The aggregate  positive  investment  and aggregate  deficit  investment
balances are presented separately on the balance sheets as of September 30, 2000
and 1999, respectively.

         The partnerships own and lease equipment.  All debt of the partnerships
is secured by the equipment and is without recourse to the general partners. The
unaudited  financial  statements  of  the  partnerships  reflect  the  following
combined, summarized financial information.

                                                            September 30,
                                                                2000
                                                                ----

         Assets                                             $52,841,000
         Liabilities                                          2,918,000
         Partners' Capital                                   49,923,000

                                                            For the Year
                                                                Ended
                                                            September 30,
                                                                2000
                                                                ----

         Revenue                                            $14,631,000
         Net Income                                           9,747,000

Note 4.  Equipment Subject to Lease and Notes Receivable:

         Equipment  subject  to lease  includes  the  Company's  investments  in
financing leases, operating leases, and off-lease equipment held for remarketing
and sale.

         Equipment  subject to lease  consists of the  following as of September
30:

                                       6
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000

                                                          2000          1999
                                                          ----          ----

Equipment on lease and held for lease, net of
    accumulated Depreciation of  $658,452 and
    $1,014,088 at September 30, 2000 and 1999,
    respectively                                       $   930,288  $   677,498
Equipment held for resale                                  107,142      174,326
Investment in financing leases                           7,121,615   26,910,121
Lease residuals                                            331,093      331,093
                                                       -----------  -----------

    Total equipment subject to lease                   $ 8,490,138  $28,093,038
                                                       ===========  ===========


Investment in Financing Leases:
------------------------------

         The Company has entered into direct lease  arrangements  with companies
engaged in different industries located throughout the United States. Generally,
it is  the  responsibility  of the  lessee  to  provide  maintenance  on  leased
equipment.

         The  Company's  net  investment  in  financing  leases  consists of the
following as of September 30:

                                                    2000            1999
                                                    ----            ----

         Minimum lease payments to be received  $  8,924,437   $ 34,723,627
         Less: unearned income                    (1,617,334)    (7,587,775)
               allowance for early termination      (185,488)      (225,731)
                                                ------------   ------------

         Net investment in financing leases     $  7,121,615   $ 26,910,121
                                                ============   ============

         Minimum rentals to be received on  non-cancelable  financing leases for
the year ended September 30, are as follows:

         2001                                             $3,672,440
         2002                                              3,030,696
         2003                                              1,609,800
         2004                                                575,330
         2005                                                 34,523
         Thereafter                                            1,648
                                                          ----------

              Total                                       $8,924,437
                                                          ==========



The activity in the  allowance  for losses on finance  leases for the year ended
September 30, are as follows:

                                                    2000          1999
                                                    ----          ----

         Beginning balance                      $   225,731   $    92,467
             Provision for losses                 1,492,435       132,405
              Recovery of provision for losses      (14,853)      127,862
             Write downs                         (1,517,825)     (127,003)
                                                -----------   -----------

         Ending balance                         $   185,488   $   225,731
                                                ===========   ===========

                                       7
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


Notes Receivable:
----------------

         Notes  receivable  for  the  years  consists  of  the  following  as of
September 30:

                                                           2000         1999
                                                           ----         ----

        Notes receivable from emerging growth and other
            companies with stated interest ranging from
            9.4% to 22.6% per annum receivable in
            installments ranging from 20 to 85 months
            collateralized by the equipment financed   $15,711,849  $53,483,374

        Less: allowance for losses                        (446,792)    (451,234)
                                                       -----------  -----------

                 Total                                 $15,265,057  $53,032,140
                                                       ===========  ===========

         Minimum payments to be received on non-cancelable  notes receivable for
the year ended September 30, are as follows:

       2001                                                $ 6,068,381
       2002                                                  5,581,047
       2003                                                  4,251,794
       2004                                                  1,851,822
       2005                                                    619,859
       Thereafter                                              129,567
                                                           -----------
       Total minimum payments to be received                18,502,470
       Impaired notes receivable                             1,146,519
       Less:   unearned interest                            (3,937,140)
               allowance for losses                           (446,792)
                                                           -----------

            Net investment in notes receivable             $15,265,057
                                                           ===========

         At  September  30,  2000,  the  recorded  investment  in notes that are
considered to be impaired was  $1,146,519.  The average  recorded  investment in
impaired loans during the year ended  September 30, 2000 and 1999 was $1,049,934
and $404,472, respectively.

         The activity in the  allowance for losses on notes  receivable  for the
year ended September 30, are as follows:

                                                        2000          1999
                                                        ----          ----

      Beginning balance                             $   451,234    $ 334,409
          Provision for losses                        3,081,741      445,556
          Recovery of provision for losses              745,960       32,633
          Write downs                                (3,832,143)    (361,364)
                                                    -----------    ---------

      Ending balance                                $   446,792    $ 451,234
                                                    ===========    =========

                                       8
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


Note 5.  Transfer of Leased Assets and Notes Receivable:

         The   Company   funds  and  holds   temporarily   equipment   financing
transactions  structured as either financing leases or notes  receivable.  These
financing transactions were being held by the Company for a short period of time
before  they were  transferred  to a special  purpose  entity for the purpose of
securitizing the payment stream.  To date, the Company has been involved in five
securitization transactions.  Pursuant to these securitization transactions, the
Company continued to transfer  additional  finance leases or notes receivable to
special purpose entities. During the year ended September 30, 2000 and 1999, the
Company transferred  additional financing leases and notes receivable to special
purpose  entities  and  recognized  a loss of $208,173  and a gain of  $855,504,
respectively.

         Recently, the Company has had to hold onto these financing transactions
for a period of time before they could be transferred to a longer-term financing
vehicle or are sold to third parties.  During the year ended September 30, 2000,
the  Company  closed  seven  sales  of  leases  and  notes  receivable  totaling
$16,857,520  in proceeds  and  recognized  total net losses of  $1,344,237.  The
Company also  transferred  leases and notes  receivable to  affiliates  for cash
proceeds equal to the net book value of $39,766,947.

         Loans and leases  financed under  short-term  warehouse lines of credit
are  accounted  for as held for sale and carried at the lower of cost or market.
Loans and leases  financed under term debt  facilities are accounted for as held
for investment and carried at cost. The  classification  as of September 30, are
as follows:

                                                    2000         1999
                                                    ----         ----
         Equipment subject to lease:
               Held for sale                    $      --    $24,392,505
               Held for investment                8,490,138    3,700,533
                                                -----------  -----------
                                                $ 8,490,138  $28,093,038
                                                ===========  ===========
         Notes receivable:
               Held for sale                    $      --    $36,954,599
               Held for investment               15,265,057   16,077,541
                                                -----------  -----------
                                                $15,265,057  $53,032,140
                                                ===========  ===========

Note 6.  Property and Equipment:

         Major  classes of property and  equipment  as of  September  30, are as
follows:

                                                        2000           1999
                                                        ----           ----

         Land                                      $  1,077,830   $  1,077,830
         Buildings                                    7,862,416      7,795,494
         Office furniture, fixtures and equipment     5,030,575      4,345,830
         Other                                          898,849        898,849
                                                   ------------   ------------

                                                     14,869,670     14,118,003
         Less:accumulated depreciation and
              amortization                           (9,811,731)    (8,654,783)
                                                   ------------   ------------

         Net property and equipment                $  5,057,939   $  5,463,220
                                                   ============   ============

                                       9
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


         PAI owns its  headquarters  building  in San  Rafael,  California.  The
Company paid  $7,749,476 to purchase the land and  construct  the building.  The
cost of construction  was paid for with a combination of $2,749,476 in cash from
the  Company's  operations  and a $5,000,000  advance  from PAI. The  $5,000,000
advance is included as a reduction in  Receivable  from Parent (see Note 2). PAI
has  pledged the market  value of the  building  as  security  for a  $5,000,000
Industrial  Revenue  Bond  ("IRB")  which  PAI has with the City of San  Rafael,
California. The principal of the IRB is payable in a lump sum payment on October
1, 2004. The Company paid $300,398 and $229,010 in interest  payments related to
the IRB for the year ended September 30, 2000 and 1999, respectively.

         Effective  August 1, 1999,  the Company and  ResourcePhoenix.com,  Inc.
(RPC), an affiliate, entered into a agreement whereby a portion of the Company's
headquarters  was leased to the affiliate for $53,650 per month. The termination
date of the rental agreement is July 31, 2001 (see Note 12).

Note 7.  Investments in Securities:

         The  Company  accounts  for its  investments  in  securities  under the
Financial  Accounting  Standards Board issued Statement of Financial  Accounting
Standards  No.  115 -  Accounting  for  Certain  Investments  in Debt and Equity
Securities  (SFAS  115).  This  pronouncement   prescribes  specific  accounting
treatment   for   investments   based  on   their   classification   as   either
held-to-maturity  securities  (HTM),   available-for-sale  securities  (AFS)  or
trading securities, as defined in the statement.

         In connection with the five prior lease and note  securitizations  (see
Note 5) the Company  acquired Class C Equipment  Investment  Trust  Certificates
(Class C Shares).  The Class C Shares are  classified as AFS and are reported at
their  estimated  fair value of $7,909,355 and  $6,689,254,  as of September 30,
2000  and  1999,  respectively.  The  Class C  Shares  do not  have a  specified
contractual  maturity.  The Company  determined that under the standards of SFAS
115 a writedown was required to adjust the carrying value of four of the Class C
Shares to fair value.  The writedown in the amount of $1,557,922  and $6,141,937
was recorded for the year ended September 30, 2000 and 1999,  respectively.  The
gross unrealized gain on the Class C Shares from the remaining securitization as
of September 30, 2000 and 1999 was $1,639,000 and $1,457,037, respectively. This
amount was recorded as an adjustment to shareholder's equity.

         All other  equities  held by the Company are  classified as AFS and are
reported at their fair value of $5,536,870  and $4,492,011 at September 30, 2000
and  1999,  respectively.  Gross  unrealized  gains  on  such  securities  as of
September 30, 2000 and 1999 were $5,536,870 and $4,492,011, respectively.

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards ("SFAS') No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities".  The  Statement  established
accounting and reporting  standards  requiring that every derivative  instrument
(including  certain  derivative  instruments  embedded  in other  contracts)  be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair value. The Statement  required that changes in the derivative's  fair value
be recognized  currently in earnings unless specific hedge  accounting  criteria
are met. The key criterion for hedge accounting is that the hedging relationship
must be highly effective in achieving  offsetting  changes in fair value or cash
flows.  SFAS No. 133 was to have been effective for fiscal years beginning after
June 15,  1999.  In May 1999,  the FASB  issued SFAS No.  137,  "Accounting  for
Derivative  Instruments and Hedging  Activities - Deferral of the Effective Date
of SFAS No.  133",  which amends SFAS No. 133 and defers the  effective  date to
fiscal years beginning after June 15, 2000.

                                       10
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


         The Company uses derivative financial  instruments from time to time to
hedge against  exposures to market risks resulting from fluctuations in interest
rates.  Derivative  financial  instruments  used by the Company include interest
rate swaps on future  securitization  transactions.  Gains or losses  related to
these  interest  rate swap  agreements  that  qualify for hedge  accounting  are
recognized as adjustments to the carrying amount of the hedged item. The Company
does not believe the adoption of SFAS No. 133 will have a meterial impact on the
Company's results of operations or financial position when adopted.

         During the year ended September 30, 1999, the Company expensed $854,708
related  to  an  interest  rate  lock.   This  interest  rate  lock  was  for  a
securitization transaction which did not occur.

Note 8.  Fair Value of Financial Instruments:

         Investments in Securities
         -------------------------

         The carrying amounts of investments in securities,  available for sale,
reported in the balance sheets approximate their fair values.

         Notes Receivable and Debt
         -------------------------

         The  fair  values  of the  Company's  notes  receivable  and  debt  are
estimated  based on the market prices of similar  instruments  or on the current
market interest rates for instruments with similar terms, maturities, and risks.
The estimated fair values of the Company's notes receivable and debt approximate
the carrying amounts reported in the balance sheets.

Note 9.  Short-Term and Warehouse Lines of Credit:

         To provide  interim  financing for equipment and working capital needs,
the Company  executed lines of credit which  consisted of short-term  notes with
banks. All lines of credit were renewable at the banks' option.  As of September
30, 2000, the existing lines of credit were refinanced to term loan agreements.

         The  Company had three  secured  short-term  warehouse  lines of credit
totaling $82.5  million,  which were used to provide  interim  financing for the
acquisition of equipment and the financing of notes receivable.  As of September
30,  2000  and  1999,   the  Company  had  drawn  down  $0  and  $64.5  million,
respectively,  under the  warehouse  lines of credit.  These  balances  were due
within one year or less. The draw-downs under these lines were collateralized by
investments in financing leases and notes receivable.  The interest rate is tied
to the Bank's base rate or LIBOR (London Interbank Offered Rate).

         On March 20,  2000,  the Company  entered  into an  agreement to extend
borrowing  to April 30, 2000 under the credit  line  originally  totaling  $37.5
million.  However,  the credit line amount was reduced from $32.5 million to $30
million  until  April  9,  2000 and to  $27.5  million  until  April  30,  2000.
Subsequently,  on April 28, 2000 the Company entered into an agreement to extend
borrowing  under  the  credit  line to June 30,  2000  with  decreasing  amounts
available  under the credit line and new borrowings  not permitted  after May 1,
2000.  After April 27, 2000, the credit line amount was reduced to $18.5 million
and then to $13 million after May 9, 2000.  The credit line was extended to July
31, 2000. On August 9, 2000, the Company fully paid off the line of credit.

         Effective  June 30,  2000,  the Company  entered  into an  agreement to
extend the date on which the outstanding balance was due and payable to December
31, 2001 on the second line of credit which originally totaled $25 million.  The
agreement  also changed the repayment of the  outstanding  principal  balance to

                                       11
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000

equal  monthly  installments  beginning  June 30,  2000 and  continuing  through
December  31,  2001.  As a  result,  on July 1,  2000  the  line of  credit  was
reclassified to long-term debt (see Note 10).

         The Company had a third line of credit which  totaled $20 million.  The
Company's  ability  to borrow  under the line  expired  on  December  31,  1999.
Effective  January 1, 2000,  the  Company  was  required  to make equal  monthly
payments on the outstanding  principal balance over 24 months,  through December
31, 2001.  Balances remaining under the line was converted to long-term debt and
subsequently paid off (see Note 10).

         In connection  with the Company's  lines of credit,  various  financial
ratios and other  covenants had to be  maintained.  The Company  guaranteed  its
right,  title and interest in certain of its assets and the future receipts from
these assets in order to secure payment and performance of these credit lines.

         Additionally,  the Company,  through PAI, had access to one  short-term
line of credit  totaling $2.5 million.  As of June 30, 1999,  the line of credit
was fully paid off and the line was terminated.

Note 10.  Long-Term Debt:

         On July 15, 1998, the Company entered into a term loan agreement with a
bank.  Under the term loan, the Company could borrow up to  $10,000,000  for the
purpose of financing or  refinancing  the  investments  in financing  leases and
notes   receivable.   The  amounts   borrowed   under  the  loan  agreement  are
collateralized  by these  assets  financed.  On August  24,  1998,  the  Company
borrowed  $9,999,648.  On August 15, 1999, the Company entered into an agreement
to increase  the amount that could be  borrowed  to  $14,500,000.  On August 30,
1999, the Company borrowed an additional  $4,458,240.  At September 30, 2000 and
1999,  $8,360,489 and $11,984,442 was outstanding,  respectively.  Any remaining
principal  due under either of these  borrowings is due and payable in 48 months
after the date of borrowing.

         Interest  on this term loan is  accrued  on the  outstanding  principal
balance at a fixed rate in excess of the two-year U.S. Treasury rate that was in
effect  at the  time of the  funding.  The  amount  payable  for  each  month is
calculated by taking the difference of the amount received from leases and notes
receivable  and  the  monthly  servicing  fee,  as  well  as  expenses  paid  to
unaffiliated  third  parties  for  legal  and  collection  expenses  related  to
defaulted  leases  and notes  receivable.  Payments  will  first be  applied  to
interest and the remainder applied to the principal outstanding.

         On June 28, 1999, the Company entered into a term loan agreement with a
bank.  Under the term loan agreement,  the Company could borrow up to $7,500,000
for the purpose of financing or refinancing the investments in financing  leases
and  notes  receivable.  The  amounts  borrowed  under  the loan  agreement  are
collateralized  by these assets financed.  On July 2, 1999, the Company borrowed
$7,325,666. On April 28, 2000, the Company entered into an agreement to increase
the amount that could be borrowed to  $12,500,000.  On May 4, 2000,  the Company
borrowed an additional  $5,000,000.  These  borrowings are due and payable in 48
months from the date of the initial  borrowing.  At September 30, 2000 and 1999,
$8,116,155 and $7,067,770 was outstanding, respectively.

         The terms of the agreement with the bank allow for an election  between
a prime rate or a LIBOR (London  Interbank Offered Rate). The amount payable for
each month is  calculated by taking the  difference of the amount  received from
leases and notes  receivable and the monthly  servicing fee, as well as expenses
paid to unaffiliated third parties for legal and collection  expenses related to
defaulted  leases  and notes  receivable.  Payments  will  first be  applied  to
interest and the remainder applied to the principal outstanding.

                                       12
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


         For both term loan  agreements  discussed  above,  the Company has also
pledged  its right,  title and  interest in certain of its assets and the future
receipts from these assets, to secure payment and performance of the loans.

         During the year ended  September  30,  2000,  several of the  Company's
short-term  warehouse  lines of credit were  refinanced  to long-term  debt.  On
December  31,  1999,  the  Company's  ability  to  borrow  under  a $20  million
short-term  line of credit  expired.  Effective  January 1, 2000,  the remaining
balance due under this line of credit was converted to a term loan with the bank
and payable over 24 months through December 31, 2001. A trust pledged certain of
its assets as additional security for this loan. The outstanding balance on this
loan was paid off in full as of August 31, 2000.

         Effective June 30, 2000, the Company entered into an agreement  whereby
the Company's $25 million short-term line of credit was converted to a term loan
with payments  commencing June 30, 2000 through December 31, 2001. The agreement
also changed the repayment of the outstanding principal balance to equal monthly
installments  of $223,611 per month.  As of September 30, 2000,  $3,354,173  was
outstanding.  Principal  payments due for the year ended  September 30, 2001 and
2002 are $2,683,338 and $670,835, respectively.

         The Company also has a mortgage  payable with  varying  interest  rates
with an initial rate of 8.75%  secured by a first deed of trust on real property
with a value of  $167,650.  The note is  amortized  over 83 months with  monthly
payments of $599 and a final  payment of $121,267.  As of September 30, 2000 and
1999,   respectively,   the  outstanding  balance  was  $125,098  and  $133,482,
respectively.  The  remaining  balance  will be due and payable  during the next
fiscal year.

Note 11.  Income Taxes:

         Effective  July 1, 1998, the Company and all its  subsidiaries  adopted
treatment as a Subchapter  "S"  Corporation  pursuant to the Federal  Income Tax
Regulations for tax reporting purposes. Federal and State income tax regulations
provide  that taxes on the income or loss of the Company are  reportable  on the
shareholder's individual income tax return.

Note 12.  Transactions with Related Parties:

         Effective August 1, 1999, PAI transferred  certain of its employees who
performed  corporate  functions  including legal,  human  resources,  facilities
management,    word   processing   and   other   administrative   functions   to
ResourcePhoenix.com,  Inc. (RPC), an affiliate. As a result, effective August 1,
1999,  the  Company  has entered  into an  agreement  with RPC in which RPC will
perform accounting,  investor services,  information technology services, legal,
human resources and other administrative services for a monthly program fee. The
terms of the  agreement is for one year,  unless  earlier  terminated  and shall
renew  automatically  for  successive  one year terms unless  written  notice is
received  by either  party at least  ninety days  prior.  The  Company  paid RPC
$3,171,102 and  $1,827,791  for these services for the year ended  September 30,
2000 and 1999, respectively. In addition, the Company paid its parent $1,012,854
for legal,  human  resources and other  administrative  services during the year
ended September 30, 1999.

         On  November  29,  2000,  RPC  announced  that  it has  agreed  to sell
substantially  all of its assets to PAI as part of an orderly wind down of RPC's
operations.  The  RPC  employees  who  perform  corporate  functions,  including
accounting,  investor  services  and  information  technology  services  will be
transitioned to PAI.

         The  Company  provided an interest  bearing  secured  line of credit to
PAI's  controlling  shareholder,  which is secured by the common stock of RPC (a
California corporation owned by PAI's controlling shareholder).  As of September

                                       13
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000

30, 1999,  $2,093,859 of this line of credit had been drawn down and is included
in notes receivable from related  parties.  In October 1999, this line of credit
was fully paid off by PAI's controlling shareholder.

         The  Company  earned  a  management  fee  from an  affiliate  of $0 and
$500,296  for the year ended  September  30, 2000 and 1999,  respectively.  This
management fee is included in Portfolio management fees.

Note 13.  Commitments and Contingencies:

         Purchase  Commitments.  The Company has entered into  agreements  which
contain specific purchase commitments. The Company may satisfy these commitments
by purchasing  equipment for its own account or by assigning equipment purchases
to its affiliated  partnerships.  At September 30, 2000, the Company anticipates
being able to satisfy its future obligations under the agreements.

         Funding  Leases and  Loans.  As of  September  30,  2000 and 1999,  the
Company had unexpired remaining  commitments to customers to fund lease and loan
transactions  aggregating  $4.3  million and $90.6  million,  respectively.  The
Company's obligation to fund under these commitments is subject to various terms
and conditions  including  satisfactory  performance  to plan.  The  commitments
typically expire within a year of the original commitment date.

         Legal  Proceedings.  On October 28, 1997, a class action  complaint was
filed against Phoenix Leasing Incorporated,  Phoenix Leasing Associates,  II and
III  LP.,  Phoenix  Securities  Inc.  and  Phoenix  American  Incorporated  (the
"Companies") in California Superior Court for the County of Sacramento by eleven
individuals on behalf of investors in Phoenix Leasing Cash Distribution  Funds I
through V (the  Partnerships").  The Companies were served with the complaint on
December 9, 1997. The complaint  sought  declaratory and other relief  including
accounting,  receivership,  imposition  of a  constructive  trust  and  judicial
dissolution  and winding up of the  Partnerships,  and  damages  based on fraud,
breach of  fiduciary  duty and breach of  contract by the  Companies  as general
partners of the Partnerships.

         Plaintiffs  severed  one cause of action  from the  complaint,  a claim
related to the marketing and sale of CDF V, and  transferred  it to Marin County
Superior Court (the "Berger  Action").  Plaintiffs  then dismissed the remaining
claims in  Sacramento  Superior  Court and  refiled  them in a separate  lawsuit
making similar allegations (the "Ash Action").

         The Ash  complaint  includes six causes of action:  breach of fiduciary
duty,  constructive  fraud,  judicial  dissolution of Cash Distribution Fund IV,
judicial  dissolution  of Cash  Distribution  Fund V,  accounting and alter ego.
Defendants  recently  answered the complaint and  discovery has  commenced.  The
plaintiffs'   depositions  have  been  taken,   and  plaintiffs   recently  took
depositions of defendants.

         The Berger  complaint  relates to  alleged  misrepresentations  made in
connection  with the  offering  of Cash  Distribution  Fund V.  Defendants  have
answered the complaint and discovery has commenced.  A class has been certified.
The  plaintiffs'  depositions  have been taken,  and  plaintiffs  recently  took
depositions of defendants.

         On August 28, 2000, the Ash and Berger actions were  consolidated  (the
"Consolidated  Action")  pursuant to  stipulation  by both  parties.  Plaintiffs
recently  served a first  request for  production  in the  Consolidated  Action;
defendants responded to the first request for production on November 27, 2000.

                                       14
<PAGE>
                  PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED BALANCE SHEETS

                               SEPTEMBER 30, 2000


Note 14.  Subsequent Events:

         During the period from  October 1, 2000 through  December 1, 2000,  the
Company  received and  recognized  gains on sale of securities of  approximately
$4.5 million.


                                       15